Loan swap scandal: twice as many affected as originally thought

The £3bn loan swap scandal – where banks mis-sold complex interest rate products to small businesses – may have affected around 100,000 firms, twice as many as originally thought, the Financial Conduct Authority has admitted.

Martin Wheatley, chief executive of the regulator, said significantly more firms may have been sold the products, designed to protect them against interest rate rises on a loan. The contracts later landed them with bills running into hundreds of thousands of pounds.

In a letter to the Treasury released following a request by John Thurso MP, a member of the Treasury Select Committee, Wheatley said that data from Barclays, HSBC, Lloyds, RBS and National Australia Bank had identified 40,000 firms where contracts are being reviewed. But he added that there are a further 60,000 products with similar features to interest rate swaps and with the same risks but which fall outside of the regulator's powers to investigate because they are "embedded" within a commercial loan.

Wheatley added that he was concerned that banks were still selling interest rate swap deals using this regulatory loophole.

"There is a risk that banks may consider embedding all their interest rate hedging products into commercial loans in future, and thus avoid our regulatory oversight altogether."

Banks have so far made provisions of £3bn to compensate customers mis-sold standalone swaps, but if sales of "embedded" swaps are successfully challenged by customers, the final bill could be much higher.